I should clarify: it's not just that entities don't have identity but that
they are not *objects* in the way that elements are. That is, they do not
have identity in the parsed result, certainly not in any commonly-used XML
processing environment (e.g., XSLT, XQuery, DOM 1 or 2, etc.).

That's a decision that could be addressed by tools, and has been in the
past. I tend to think the rush to put XML everywhere fast led to their
non-objectification.